Gas price to well up with oil's elevation

$56.46-a-barrel mark drives dire forecasts

Crude oil prices surged to a record high Wednesday, and industry analysts say the cost of gasoline at the pump is headed in the same direction.

The benchmark price of crude closed at $56.46, up $1.41 a barrel, on the New York Mercantile Exchange, beating the previous record close of $55.17 set twice in October of last year.

Gasoline prices follow the cost of crude, and the jump in oil prices will soon be apparent to motorists.

"I forecast we will be breaking records in gasoline prices," said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University, who added that gasoline prices could hit new highs as soon as this week.

According to AAA Chicago, the average price of a gallon of regular gasoline in Chicago was $2.132 Wednesday, still below the record $2.192 set in late May but far above the $1.762 recorded on the same date last year.

Gasoline prices typically start rising about this time of year, as auto travel begins to pick up, and a government report released Wednesday showed that inventories of gasoline and distillate fuel, which includes diesel and jet fuel, declined last week.

Industry analysts say the increase in oil prices is fueled by concern that the global demand for petroleum is exceeding the capacity to pump it.

"It's the outlook that is causing people to worry," said Jeb Armstrong, an oil industry analyst with Argus Research. "Will the world be able to produce enough?

"We have to get used to the fact that the support price for oil is creeping ever higher," he said.

In the past, the member nations of the Organization of Petroleum Exporting Countries could raise or lower production to manipulate the price of petroleum.

But with the exception of Saudi Arabia, OPEC nations, along with every other oil-producing country, are pumping at maximum capacity to take advantage of current high prices.

Wednesday, OPEC representatives meeting in Iran voted to increase production quotas by a half-million barrels a day. The Saudis are expected to supply the increase.

Ordinarily, that move would depress oil prices, but instead they rose.

OPEC's acting secretary general told the Associated Press that he was disappointed by the market's reaction.

"It's not the result we wanted," said Adnan Shihab-Eldin. "Prices should have eased."

The higher oil prices have captured the attention of the Bush administration.

"I am concerned about the price of energy," President Bush told reporters. "I am concerned about what it means to the average American family when they see the price of gas going up."

Bush won a significant victory Wednesday when the Senate voted to allow oil exploration in the 1.5 million-acre coastal plain of the Arctic National Wildlife Refuge in Alaska.

But it will take years to develop production there, assuming oil companies find it economical to drill. And in any case, the area is believed to contain only enough petroleum to supply the U.S. for six months.

Shares of oil companies typically rise with the price of crude, and the last year has been no exception.

For example, the stock of Exxon Mobil Corp., the world's largest publicly traded oil company, has risen from about $42 a year ago to close Wednesday at $60.29. The American Stock Exchange index of oil-company stocks has risen 49 percent over the past year.

But the easy money for investors may be over, one observer said.

"Investors become concerned that the push we are seeing in crude would ultimately lead to slower economic growth, less use of crude as an energy source," said Marc Pado, U.S. market strategist for Cantor Fitzgerald.

Those developments eventually conspire to drive down oil prices and the stock of oil companies, but Pado said petroleum prices may rise a bit before stabilizing.

"I think we are going to see crude peak out at $60 a barrel and, ultimately, pull back to a more reasonable $50 a barrel," he said.